In the buyer’s market of today, it seems like everyone is trying to get into a home while the prices are still at record lows. Though despite the fact there are almost the best mortgage deals available in history, not all aspiring homeowners have the funds to begin a long term mortgage. Aware of this, lenders are beginning to offer no deposit mortgages so that potential homeowners can forgo saving for large down payments and own their dream home today. Just as with any loan, however, you need to understand what you’re getting into with a no deposit mortgage before you sign the dotted line.
What is a No Deposit Mortgage?
As the name implies, a no deposit mortgage is one in which you do not have to have the large portion of the mortgage as a down payment. Since lenders typically ask for 20% of the total value for a down payment, many potential buyers are scared away before even beginning the process. With a no deposit mortgage, you can take out two different mortgages at the same time – one for the deposit and another for the remainder. This allows you to pay a minimal upfront fee for your home, while also getting your in the front door.
Who Can This Mortgage Benefit?
At first glance, it seems like everyone can benefit from this type of mortgage. Because you do not need to have any money upfront, you can begin the home buying process as soon as you find a home that you like. For those without a lot of savings, this is an ideal arrangement. It is also a good loan agreement for those that want to take their savings and invest in stocks and high interest accounts, rather than using the money for their mortgage payments. In the end, these high interest accounts will help the person save up more money than they would have saved by using it toward the house itself. And for home buyers that might not have the best credit rating, these loan agreements can help them get back on solid financial footing.
What are the Problems with the Mortgage?
The main problem with no deposit mortgages is that applicants that don’t have a strong financial background are at a higher risk of defaulting. This is often why these mortgages are accompanied with higher interest rates than typical ones. Another concern with this type of mortgage is that even if you do receive a low interest rate, you still might end up paying more interest in the end. This is due to the borrower essentially being responsible for two mortgages instead of one. For instance, say you get a no deposit mortgage and you then eventually get an ARM mortgage (adjusted rate mortgage), you might end up having to pay a much great sum since you are carrying two loan agreements.
If you know that you can be disciplined about paying off your mortgage and beginning a savings plan, then the no deposit mortgage is certainly something to consider. Just be sure that the arrangement needs to work out for you in the end too, not just for the lender.
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